Fed report points to changing trend in credit card delinquency

The number of US citizens skipping their credit card payments had been falling since the height of the financial crisis, inching towards the low levels not seen since the salad days of the economy in 1999, the Federal Reserve Bank of New York reported.

According to the Fed's quarterly household debt and credit report released on Tuesday, the good news could be attributed to the fact that banks were not giving people with low credit scores access to credit since the Great Recession that started in 2008. But, according to the report, that was changing.

More people were getting credit, mostly in the form of auto loans and credit cards, which together helped raise total household debt by $35 billion to $12.3 trillion in the last quarter.

The household debt overall was 3 per cent below its peak of $12.7 trillion, reached right before the recession hit. However, it was 10 per cent above its lowest point, hit after the end of the recession.

According to commentators, the growing availability of credit was typically considered a marker of a growing economy, indicating that people were spending more money. However, there could be a downside when credit was too widely available to people who could not make their loan or credit card payments (a primary cause of the 2008-2009 financial crisis).

According to the report, the total outstanding credit card balance stood at $729 billion, up $17 billion from the first quarter. However, it was still much below the peak of $866 billion reached in the fourth quarter of 2008. Credit card delinquency rates had continued to improve after they peaked in 2008.

The overall use of credit cards had fluctuated with the business cycle, and measured by the share of individuals with at least one card, participation was highest in the second quarter of 2008 at 68 per cent of borrowers and then declined sharply to 59 per cent during the Great Recession.